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Business/Finance See other Business/Finance Articles Title: The Donald and the Dollar The Donald and the Dollar Boris Schlossberg | Wednesday, May 11, 2016 at 4:30 pm The night of the Indiana primary, something interesting happened in the currency market. As the Asian session was just opening, the news of Donald Trump’s decisive victory pushed the dollar higher against most major trading partners, especially against the yen. Then, later in the night, when Ted Cruz dropped out of the race, the greenback pushed even higher. For most investors, the notion that the Donald is good for the dollar may seem bizarre. This is, after all, the man who sent the media and conventional economists into outbursts of rage when he suggested that the U.S. government should negotiate its debt with creditors. In all fairness to Trump, that wasn’t really what he said. He was simply musing about the prospect of using “on-the-run” bonds (those freshly issued by the Treasury) to pay off the “off-the-run” bonds (those that have been circulating in the secondary market for a while). The idea is that off-the-run bonds trade at a discount to on-the-run bonds, kind of like the discount that occurs when a brand-new car is driven off the lot. The product is essentially the same, but now it’s worth a lot less. The U.S. presidential race could have a big impact on the dollar/yuan rate. In any case, Trump’s ruminations were not even that unorthodox. The U.S. Treasury considered such a plan as early as 1999, when the U.S. was running budget surpluses and when the government was thinking about reducing the face amount of U.S. debt. Still, the kernel behind Trump’s idea does imply that he is betting on the deterioration of U.S. credit as a way to squeeze the creditors. So why then would the dollar rally on the idea of a Trump win? The reason actually lies elsewhere. One of Trump’s strongest and most committed policy stances is that the U.S.-China trade relationship should be seriously re- examined. His take-no-prisoners stance against the Chinese could actually become the key stress point in the global economy. China is already hurting. After spending more than a trillion dollars in additional credit, the Chinese economy continues to slow. In fact, imports have fallen by double-digits on a year-over-year basis for the first four months of 2016. “Now that a Trump presidency looks like a real possibility, the prospect of a yuan crash has become a much bigger risk.” Despite their typical bravado, the Chinese leadership is clearly worried. And what they fear most is a rapid devaluation of the yuan. The country is already running a debt-to-GDP ratio of 280%. And despite $3 trillion in reserves, Chinese policymakers are very concerned that capital outflows could quickly deplete their war chest. For the past few months, mollified by the dovish stance of the Fed and the still uncertain outcome of the Republican primaries, the yuan stabilized. But now that a Trump presidency looks like a real possibility, the prospect of a yuan crash has become a much bigger risk. Trump, of course, is the master of seizing his opponents’ weakness and will likely be much more hardnosed with the Chinese than Hillary Clinton would be. Little wonder, then, that the yuan has fallen to its weakest reading against the buck in more than two months. The currency markets are beginning to understand just how the game will be played. Although dollar strength may be viewed as positive from a political point of view, economically it could wreak havoc on the markets. U.S. equity markets are American in name only. Many Dow Jones-listed companies earn as much as 70% of their revenue offshore. A strengthening dollar could depress earnings for several quarters forward and cause a correction in stocks of 20% or more. That’s why for equity investors this summer the most important number to follow will not be the market’s P/E ratio, but rather the dollar’s exchange rate and Trump’s presidential poll readings. As the dollar starts to rise along with Trump’s poll numbers, stocks could fall hard. Best wishes, Boris Schlossberg Poster Comment: The Dollar is calling the shots now and telling us that Trump is a winner. Post Comment Private Reply Ignore Thread Top • Page Up • Full Thread • Page Down • Bottom/Latest Begin Trace Mode for Comment # 8.
#1. To: BTP Holdings (#0)
(Edited)
The Chinese are sitting on a mountain of gold. All they have to do is back their currency with gold and the dollar is crap (which it is anyway). Don't assume that the Chinese are in worse shape economically than the U.S. Because they aren't. Also, don't assume that the Chinese don't have one hell of a lot of power in the economic world - both here and abroad. They are buying up a lot of US real estate, for pennies on that dollar.
Actually, the Chinese who have stolen lots of money from their fellow countrymen are using markers to launder money in real estate transactions. The marker is this: one man buys a home. He marks it. He sells it for $2 million to someone who knows he can sell the marker to a third Chinese man for $3 million. The Chinese have $4 trillion stashed in British banks in the Caribbean. Asian Times magazine said Big Banks launder $500 billion a year in bribes. And 40% of those bribes were paid to Chinese government officials.
Sounds like JP Morgan, HSBC, and Goldman Sachs.
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